A set of proposed amendments will remove critical exemptions to better protect investors
The Canadian Securities Administrators (CSA) is seeking comment on a set of proposed changes to tighten the regulatory framework for syndicated mortgages in Canada.
“The proposed amendments introduce a common regulatory approach for syndicated mortgages across Canada,” said Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers. “The measures also enhance investors' ability to make informed decisions when purchasing these investments.”
According to a statement from the CSA, the changes — reflected in proposed amendments to National Instrument 45-106, National Instrument 31-103, and Companion Policy 45-106CP — will see prospectus and registration exemptions that apply to syndicated mortgages in certain jurisdictions removed.
Specific concerns with syndicated mortgages would be addressed through changes to certain prospectus exemptions, including a requirement for issuers to deliver property appraisals from an independent, qualified appraiser. Syndicated mortgages would also no longer fall under the private issuer exemption, instead being offered under alternative prospectus exemptions that have reporting requirements. Exemptions that would allow syndicated mortgages to be sold to retail investors would come with a requirement that a dealer be registered with securities regulators.
Ontario’s real-estate boom in recent years has led to increased interest in syndicated mortgages, reported the Financial Post. The market expanded from $3.7 billion in 2014 to $6.6 billion by the end of 2016. There have also been lawsuits filed by investors who said they lost money because they weren’t adequately informed of the risks.
As the regulator in charge of mortgage brokers, the Financial Services Commission of Ontario (FSCO) is currently responsible for overseeing syndicated mortgages in the province. But an investigation by Reuters late last year found that from 2011 to 2015, the agency did not act on complaints and warnings of the products being offered to investors for whom they were ill-suited or too risky. The Ontario Securities Commission has said it would take over syndicated mortgage investment oversight from the FSCO.
The CSA has set a 90-day consultation period on the proposed changes, which would be harmonized across the country.
